Does a Trust Need an EIN for Tax Purposes?

Individuals who create a trust as part of an estate plan naturally wonder if the trust needs an EIN for tax identification purposes. The answer depends on the type and nature of the trust. There are general rules that apply, but when you establish a trust, you should rely on your estate planning attorney or a tax professional for advice on whether an EIN is necessary.

Confusing Terminology of Tax Numbers

One reason tax identification numbers cause confusion is the terminology, including the fact that the terms Tax Identification Number (also referred to as TIN) and Employer Identification Number (known as an EIN) are often used interchangeably. An EIN is a specific type of tax identification number obtained (at no cost) by applying to the Internal Revenue Service. Much of the confusion arises because of terminology used for this number. Despite including the term “employer,” an EIN is a tax identification number used for a wide range of business and legal entities, including trusts, for tax purposes unrelated to employment.

Generally, individuals file tax returns using their Social Security Number as the tax identification number on their returns. However, in some situations, including some trusts, a separate tax identification number, called an EIN, is necessary for filing tax returns. The EIN functions like a Social Security Number for the trust, but the EIN does not replace or take the place of an individual’s Social Security Number. In this context, the EIN does not relate to employment. Whether a trust requires a separate EIN depends on the type and status of the trust.

Revocable v. Irrevocable Trusts

When the grantor (creator) of a revocable living trust is still alive, the grantor typically retains control over the trust and reports income from the trust on their individual return. In that situation, the grantor’s Social Security Number serves as the tax identification number for the trust. In most cases, when the grantor of a revocable living trust passes away, the trust becomes an irrevocable trust. At that point, the trust must obtain its own EIN and can no longer use the grantor’s Social Security Number.

The issue of whether an irrevocable trust needs an EIN turns on the tax attributes of the irrevocable trust. In some instances, an irrevocable trust that holds income producing assets must obtain an EIN. In other instances, as described below, a separate EIN is not necessary under federal law. Regardless, if a trust requires an EIN, a single trust only needs one EIN, even if there are multiple beneficiaries. However, if one person is the grantor of multiple trusts needing an EIN, each trust must have a separate EIN and file a separate return.

Financial institutions often erroneously give incorrect advice about obtaining an EIN for a trust, especially in cases when an EIN actually is not necessary. Rather than relying on advice from a financial institution, you should always seek sound advice from your estate planning attorney or tax professional concerning whether you need to obtain a separate EIN for a trust. Fixing an EIN requested in error is more difficult than avoiding an error in the first place. Getting the right advice in the beginning is extremely important.

Summary of EIN Requirements for Trusts

Having the correct tax identification setup for a trust ensures compliance with IRS rules and proper reporting of income, distributions, and deductions, and avoids confusion with tax filings. If you are the grantor of a trust, consulting with a knowledgeable attorney or tax professional is the best approach for making certain that you choose the proper setup in the beginning. The following rules generally apply to trusts, but the result in a specific, individual situation may be different.

Revocable Living Trusts

During the grantor’s lifetime, income from revocable living trust assets is reported on the grantor’s individual personal tax return, using the grantor’s Social Security Number for tax identification purposes. If a revocable living trust becomes an irrevocable trust when the grantor passes away, which is often the case, the successor trustee must obtain an EIN for the trust for tax purposes.

Irrevocable Trusts

At Asset Protection & Elder Law of Georgia, 99% of the irrevocable trusts that we draft for clients are Intentionally Defective Grantor Trusts (IDGT), which means that the income is taxed to the grantor and not to the trustee under the applicable U.S. Treasury Regulations. While trusts generally use an EIN, the regulations create exceptions for grantor trusts and permit the grantor to use their SSN as the TIN for the grantor trust, rather than utilizing the trust’s EIN. The IDGT is treated as owned by the grantor for income tax, which allows the grantor to report income, deductions, and credits directly, using their SSN without obtaining an EIN. The trustee provides the grantor with the required tax information, and the grantor reports it on their personal Form 1040.

Other Trusts

If a trust generates income, holds assets, or has tax reporting requirements separate from the grantor’s, the trust probably needs an EIN for filing purposes.

Talk With an Experienced Georgia Estate Planning Attorney

Our Cartersville estate planning practice at Asset Protection & Elder Law of Georgia focuses on helping clients find the right solutions for all their concerns involving their assets, families, and estates. We serve clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County and Paulding County. To schedule a consultation, call us at (770) 382-0984 or contact us through our online form.